T-Mobile NL management overhaul suggests DT may be ready to sell

Thursday 23 June 2016 | 14:31 CET | Market Commentary

Deutsche Telekom has announced major changes in the management at its subsidiary T-Mobile Netherlands. The current CEO is leaving, and it's still searching for a successor. The CFO will be replaced on an interim basis, and new CTIO and consumer chiefs have been named. Only the head of the business division will remain. The company did not give any concrete reason for replacing four of its five top executives. We see three possible reasons: a need for a radical change in strategy; the poor results; or a plan to sell the Dutch company. 

Shift in strategy

To start, the strategy may not be working. The fact that changes are needed is already clear from the recently presented 'Mobile First' plan, which will be executed by the new management. However, there is not a lot new in this strategy, and 'mobile first' says little for a company that is de facto mobile-only. 

T-Mobile has started a number of innovations, within its limited possibilities, such as an offer for unlimited data, big data allowances and the streaming TV service Knippr. Nevertheless, the fact that it cannot offer fixed services (it sold ISP Online) remains a sore point for Deutsche Telekom, especially as bundling is the market trend in the Netherlands. A provider needs to offer triple-plays, quad-plays and fixed-mobile services is it wants to establish a major position on the Dutch market. 

If it decides to go this route, the new management can always sign a wholesale deal with KPN (VULA, as already agreed by Vodafone, Tele2 and Online). A new leadership always has the chance for a 'big bath', changing direction radically, and if needed combined with write-downs and lay-offs. Alternatively, T-Mobile could push for open access to Ziggo's network and wait for cable regulation.

Weak results

A second reason for the changes may be the poor results at T-Mobile. Customer numbers, ARPU, revenue, margins and free cash flow - all are in free-fall for several quarters. The operator has already announced a 10 percent cut in its workforce. This alone could be the reason for replacing the management. It's notable though that this is happening now, so soon after the launch of the 'new' strategy, which has yet to be implemented. 

Sale or merger

Third, Deutsche Telekom may be getting ready to try and sell T-Mobile NL again. Earlier attempts reportedly failed to achieve the desired price, and DT is thought to have shelved the plans at the end of last year. Sale rumours continue to re-emerge though, and Deutsche Telekom may be ramping up its efforts again. The new executives are likely to have more experience in finance and banking. Tele2 is the most likely candidate to buy T-Mobile, as it's bleeding cash since the launch of its own mobile network and needs to gain scale. Tele2 Group has previously said its "buyers, not sellers". Furthermore, other telecom assets may be coming on the market, such as Caiway (CIF), Delta and M7 (CanalDigitaal, Online).

Whatever the reason for the change in management, the new team faces a challenging task to increase the value of this mobile-only asset. 

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